The following is an overview of the loan originator compensation rules as set forth by current guidance regarding the Fed’s amendment to Reg. Z and REMN’s associated policies and procedures. Please note that this memo is not intended to be legal advice and we recommend that you consult compliance counsel for additional direction.
REGULATION KEY POINTS:
- The loan originator’s compensation may not be tied to the interest rate and the compensation may not be increased by raising the borrower’s interest rate.
- Compensation may be based on an established percentage of the principal loan amount.
- The loan originator may receive compensation from either the borrower or the lender but not from both. The loan originator will have the choice of borrower paid or lender paid compensation and this can be determined on a transaction-by-transaction basis.
Applications received by REMN (lender) before April 1st will be paid under current compensation format. Applications received on or after April 1st will be paid under new compensation rules. Please utilize our litefile submission process (Announcement 09-23) to ensure that any loan locked in March will not be subject to the new policy.
Any loan locked in March but submitted in April will be subject to the new policy, which may negatively affect the loan. For example, if a loan is locked with a credit of 3.5 and you have chosen a 2.5 compensation plan, the extra 1.0 point will be credited to the borrower. Conversely, if the loan is locked with a credit of 1.5 and you have chosen a 2.5 compensation plan, the additional point must be PAID BY THE BORROWER. This may result in GFE issues which could possibly lead to the loan not closing.
Borrower Paid Compensation:
- Compensation is negotiated directly between the borrower and the broker.
- The borrower may pay the broker in cash or by financing the amount into the loan.
- Any pricing adjustments will affect the borrower’s premium credit or discount points paid directly to REMN. The premium credit given to the borrower can only be used to pay third party costs and no portion of the credit can be applied to the broker compensation.
- Under borrower paid compensation, the broker may give a credit to cover closing costs or to comply with any high cost restrictions.
- A principal of your company will be required to attest that the company has established LO compensation agreements with each of your loan officers in accordance with all applicable rules and regulations as they pertain to borrower paid compensation.
- An example of borrower paid compensation as it will appear on the daily price sheet is below:
Lender Paid Compensation:
- Compensation is paid to the broker by REMN.
- The broker will have the ability to select from a range of compensation percentages (BPS) between 100 bps and 350 bps. Compensation percentages will impact broker pricing, therefore it is important that the broker chooses with both anticipated revenue and pricing taken into consideration. It is your responsibility to be able to justify your chosen fee structure and to identify the factors considered such as: overhead, region, service provided to consumers etc… We recommend that you seek counsel to ensure compliance.
- The compensation selection form must be completed on our website by 03/23/2011. This can be accessed by choosing the “Broker Comp” option from the front page of our website. NOTE: In the event that you do not complete this process, your compensation percentage will be assigned the default level of 250 bps.
- The selected amount will not be amended by our lock desk on individual lock requests, so you must also consider any high cost implications of your selection. Lender Paid Compensation may not be reduced for any reason, and you may not credit any of your Lender Paid compensation to the borrower’s closing costs.
- A principal of your company will be required to attest that the company has established LO compensation agreements with each of your loan officers in accordance with all applicable rules and regulations.
- You will be able to update your chosen Compensation Percentages on a monthly basis. This will be based on a set schedule effective the 1st day of each calendar month. Your updated election must be received by REMN no later than the 25th day of the month preceding the requested change (For example: if you want to change for June 1st, you must submit a Compensation Selection update form no later than 5/25/11). NOTE: That if you request a change, the updated percentage will apply to applications received by REMN on the 1st of the month the change is requested for, not for existing loans in the pipeline.
- An example of lender-paid compensation as it will appear on the daily price sheet is below:
BORROWER-PAID vs. LENDER-PAID COMPENSATION COMPARISON
Source of Compensation
|REMN pays the compensation directly to the broker.||Paid by the borrower from their own funds to the broker; either cash at closing or from loan proceeds.|
|Compensation Amount||Compensation will be paid based on a percentage of the principal loan amount and range from 100 bps to 350 bps||Compensation may vary per individual transaction based on negotiations with the borrower.|
|Borrower Credit||Can only be used to cover third-party costs.||Can be used to cover third-party costs but cannot be used to pay any portion of the broker’s compensation. Premium pricing cannot exceed third-party costs.|
|Broker Concessions||Broker cannot lower compensation or offer credits toward third-party costs or lock extensions.||Broker may lower compensation or offer credits toward third-party costs.|